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NEW YORK, Oct. 29, 2010 (GLOBE NEWSWIRE) -- Carver Bancorp, Inc. (the "Company") (Nasdaq:CARV), the holding company for Carver Federal Savings Bank ("Carver" or the "Bank"), today announced financial results for the three month period ended September 30, 2010, the second quarter of its fiscal year ending March 31, 2011 ("fiscal 2011"), as well as suspension of the quarterly cash dividend on its common stock.

The Company reported a net loss of $23.4 million for the second quarter of fiscal 2011 compared to a net loss of $0.3 million for the second quarter of fiscal 2010 and a loss of $2.5 million for the first quarter of fiscal 2011. On a per share basis, the net loss per share for the quarter was $9.43 compared to a net loss per share of $0.22 for the second quarter of fiscal 2010 and a net loss per share of $1.09 for the first quarter of fiscal 2011. The losses for the quarter are due primarily to a higher provision for loan losses and a $20.7 million non-cash charge to establish a valuation allowance on the Company's deferred tax asset. Earnings were also impacted by the current low interest rate environment combined with elevated levels of non-performing loans and a reduction in interest earning assets.

"We have taken aggressive steps toward rebalancing our loan portfolio and preserving capital as the impact of a prolonged recession makes its way through our books," said Deborah C. Wright, the Company's Chairman and CEO. "In addition to suspending the quarterly cash dividend, we have dramatically reduced Carver's concentration in real estate loans. Over the past six months, through the diligent efforts of our lending and workout teams, we have reduced our construction loan balances by 26% through a combination of problem loan resolutions, charge offs, pay downs and early payoffs. As we continue these efforts, we expect continued significant reductions in construction loan balances in addition to other actions we are taking to reduce the size of our balance sheet.

"While improving asset quality is our main priority, we also have new initiatives in place to reduce costs, maintain our strong interest rate margin and increase fee income. Importantly we look forward to launching a new product line to reach our community's unbanked residents, in early 2011. While some further erosion in our asset quality is expected into the next quarter, we are hopeful that the total level of delinquencies will begin to subside in the first half of 2011."

Ms. Wright added, "While we continue to meet the regulatory definition of a well capitalized bank, the Office of Thrift Supervision has made it clear, as we first disclosed last December, that we should significantly raise our capital ratios in light of our current asset quality and earnings level, in order to avoid additional regulatory oversight in the future. As a result, we are in an active process to raise new capital, which may include a combination of equity and debt instruments. This is our highest priority and we hope to have the process completed by the end of this year.

"These continue to be very challenging times, but we are positioning Carver to successfully weather this economic downturn and build on the strength of our franchise and leadership position in the neighborhoods we serve," Ms. Wright concluded.

For the six month period ended September 30, 2010, the Company reported a net loss of $25.9 million, or $10.53 per share, compared to net income of $0.4 million, or a loss per common share of $0.04 for the prior year period. The losses for the three and six month periods ended September 30, 2010, are due primarily to higher provisions for loan losses and a $20.7 million non-cash charge to establish a valuation allowance on the Company's deferred tax asset in the second quarter of fiscal 2011. The valuation allowance, which could be released in future periods if the Company returns to profitability, had no impact on the Bank's liquidity or its regulatory capital ratios.

The Company's Board of Directors announced that, based on highly uncertain economic conditions and the desire to preserve capital, Carver is suspending payment of the quarterly cash dividend on its common stock, effective immediately. While no assurance can be given that the payment of cash dividends will be resumed, the Board will continue to monitor business conditions, the Company's capitalization and profitability levels, asset quality and other factors in considering whether to resume such payments in the future.

As previously disclosed in a Form 8-K filed with the Securities and Exchange Commission on July 15, 2010, the Company restated its previously reported operating results for the second fiscal quarter ended September 30, 2009 to adjust the estimated fair value of certain residential mortgage loans that were classified as Held for Sale and reported at the lower of cost or fair value as of September 30, 2009. As a result of the correction net income for the second fiscal quarter was adjusted from a $0.8 million profit to a $0.3 million loss for the quarter. The adjustment reduced net income for the six month period ended September 30, 2009 from $1.5 million to $0.4 million. For additional information, please review the Company's Form 10-K for the year ended March 31, 2010 and the Form 8-K filed on July 15, 2010. All financial information provided herein reflects these restated amounts.

Second Quarter Results

The Company reported a net loss for the quarter ended September 30, 2010 of $23.4 million compared to a net loss of $0.3 million for the prior year period. The net loss is the result of $6.5 million in higher provisions for loan losses and a $20.7 million valuation allowance taken on the Company's deferred tax asset ("DTA"), partially offset by increased non-interest income.

Net Interest Income

Interest income decreased $1.2 million in the second quarter, compared to the prior year quarter, as the average balance of interest earning assets declined $45.5 million, primarily due to a $42.0 million decline in the average balance of loans and a $5.0 million decline in the average balance of mortgage-backed securities. The decline in average loans was the result of management's efforts to reduce the Company's concentration of certain asset classes in its loan portfolio, which is expected to continue into next quarter. A decline of 72 basis points in the average yield on mortgage-backed securities to 3.40% from 4.12% in the prior year period also contributed to the overall decline in interest income. The current low interest rate environment combined with elevated levels of non-performing loan assets and a reduction in interest earning assets continue to constrain earnings.

Interest expense decreased by $0.2 million, or 8.8%, to $2.5 million for the second quarter, compared to $2.7 million for the prior year period. The decrease was primarily the result of a decrease in interest expense on deposits of $0.3 million. The decrease in interest expense reflects an 11 basis point decrease in the average cost of interest-bearing liabilities to 1.49% for the second quarter, compared to an average cost of 1.60% for the prior year period. The decrease in the average cost of interest bearing liabilities was primarily due to the downward re-pricing of certificates of deposits and an increase in money market balances, which generally carry lower interest rates than certificates of deposit.

Provision for Loan Losses

The Company recorded a $7.8 million provision for loan losses for the second quarter compared to $1.3 million for the prior year period. For the three months ended September 30, 2010, net charge-offs were $6.0 million compared to net charge-offs of $0.6 million for the prior year period. The increase in our provision reflects the Company's continued high levels of delinquencies and non-performing loans, the overall inherent risk in our loan portfolio and the uncertainty caused by the uneven economic recovery in the real estate market and the New York City economy.

Non-interest income increased $2.9 million, or 433.6%, to $2.2 million for the second quarter, compared to a loss of $0.7 million for the prior year period. The increase is primarily due to lower valuation adjustments on loans held for sale of $2.1 million to reflect loans held for sale at the lower of cost or fair value, a gain on the sale of investment securities of $0.7 million and higher fee income on New Market Tax Credit (NMTC) transactions of $0.3 million, partially offset by lower loan and deposit fees of $0.2 million.

Non-interest Expense

Non-interest expense increased $0.7 million, or 10.1%, to $7.6 million compared to $6.9 million for the prior year period. This change was primarily due to increased loan related expenses of $0.4 million, increased consulting expenses of $0.2 million and increased FDIC insurance premium charges of $0.1 million.

Income Taxes

The income tax expense was $17.0 million for the second quarter compared to a $0.8 million tax benefit for the prior year period. The income tax expense for the three month period ending September 30, 2010 consists of an income tax benefit of $3.7 million, primarily due to the Company's loss before income taxes in the current quarter compared to a smaller loss in the prior year period, offset by an income tax expense associated with the establishment of a $20.7 million valuation allowance against the deferred tax asset recorded during the quarter. In addition, the current quarter reflects the utilization of credits of $0.6 million on NMTC transactions. Management has concluded that it is "more likely than not" that the Company will not be able to fully realize the benefit of its deferred tax assets and thus, a valuation allowance of $20.7 million was recorded during the quarter. This valuation allowance does not preclude the Company from utilizing the accumulated deferred tax asset to offset future earnings.

Six Month Results

The Company reported a net loss for the six months ended September 30, 2010 of $25.9 million, compared to net income of $0.4 million for the prior year period. The decrease is primarily due to $12.1 million of higher provisions for loan losses and a $20.7 million valuation allowance incurred on the Company's deferred tax asset, offset by an increase in non-interest income.

Net Interest Income

Net interest income decreased $0.8 million to $13.9 million compared to $14.7 million for the prior year period. This decrease was due to a decrease of $1.5 million in interest income offset by $0.7 million decrease in interest expense.

Interest income on loans was the primary driver of the decline in interest income, decreasing $1.2 million or 6.14% from the prior year period. The change reflects a year over year decline of $26 million on the average balance as well as a reduction in the average yield on loans of 13 basis points to 5.43% compared to the prior year period of 5.56%. Also contributing to the decline in interest income was the mortgage backed securities portfolio. The average yield decreased 57 basis points to 3.56% compared to the prior year period of 4.13%, primarily reflecting the current low interest rate environment.

Interest expense decreased $0.7 million or 12.28% from the prior year period. The decline was primarily the result of lower interest expense on deposits of $0.8 million. This decline reflects an 11 basis point decrease in the average cost of interest bearing liabilities to 1.50% from 1.71% for the prior year period. The lower average cost of interest bearing liabilities was primarily due to the increase in non-interest bearing checking accounts, downward re-pricing of certificates of deposits, and increased money market balances, which often carry lower interest rates than certificates of deposit.

For the six month period ending September 30, 2010 the Company recorded a $14.1 million provision for loan losses compared to $2.0 million for the prior year period. Net charge-offs totaled $8.7 million for the six months ended September 30, 2010 compared to net charge-offs of $0.9 million for the prior year period. The Company determined that an increase in provision was warranted given its current level of delinquencies, coupled with continued uncertainty in the real estate market given the uneven economic recovery.

Non-Interest Income

Non- interest income increased $3.6 million during the six month period ending September 30, 2010 to $4.1 million compared to $0.5 million in the prior year period. The increase was primarily due to fees of $1.1 million received on three NMTC transactions as well as a reduction of $2.1 million in the amount required to reflect loans held for sale at the lower of cost or fair value.

Non-interest Expense

Non-interest expense increased $1.1 million during the six month period ending September 30, 2010 to $15.1 million compared to $14.0 million in the prior period. The increase was primarily due to loan related expenses of $0.5 million and increased consulting expenses of $0.2 million

Income Taxes

Prior to the recognition of a valuation allowance, during the six month period ending September 30, 2010 the Company recorded an income tax benefit of $6.0 million compared to a prior year benefit of $1.2 million. The income tax expense recorded for the six month period ended September 30, 2010 consists of an increase in tax benefits resulting from the Company's loss before income taxes in the first six months of the year compared to the prior year offset by tax expense associated with the establishment of a $20.7 million valuation allowance against the Company's deferred tax asset. The current period reflects the utilization of NMTC tax credits of $1.2 million. Management has concluded that it is "more likely than not" that the Company will not be able to fully realize the benefit of its deferred tax assets and thus a valuation allowance of $20.7 million was recorded during the quarter ended September 30, 2010. This valuation allowance does not preclude the Company from utilizing the accumulated deferred tax asset to offset future earnings.

Financial Condition Highlights

At September 30, 2010, total assets decreased $50.7 million, or 6.3%, to $754.8 million compared to $805.5 million at March 31, 2010. The loan portfolio decreased $50.8 million, the loan loss provision increased $5.4 million, the deferred tax asset decreased $14.3 million and cash and cash equivalents decreased $2.5 million. These decreases were offset by increases in investment securities of $21.7 million, and other assets of $2.0 million.

Cash and cash equivalents decreased $2.5 million, or 6.6%, to $35.8 million at September 30, 2010, compared to $38.3 million at March 31, 2010. The decrease is due to utilization of cash flow from loan repayments to repay fixed rate borrowings and increase investment securities.

Total securities increased $21.7 million, or 39.2%, to $77.1 million at September 30, 2010, compared to $55.4 million at March 31, 2010. The variance is driven by increases of $14.4 million in available-for-sale securities and $7.3 million in held-to-maturity securities on net purchases of $27.2 million of investment securities offset by principal repayments.

Total loans receivable decreased $50.8 million, or 7.6%, to $619.2 million at September 30, 2010, compared to $670.0 million at March 31, 2010. Principal repayments net of advances and originations across all loan classifications contributed to the decrease, with the largest impact from Construction ($24.7 million), Commercial Real Estate ($12.7 million) and Business ($12.7 million) loans.

The Company's deferred tax asset at March 31, 2010 was $14.3 million. The components of the deferred tax asset are primarily related to new market tax credit and allowance for loan losses recorded in prior periods. The deferred tax asset increased $6.4 million during the period due primarily to the reported loss for the six month period ended September 30, 2010 and to the additional provision for loan losses. Realization of the deferred tax asset is dependent upon the existence of, or generation of, sufficient taxable income to utilize the deferred tax asset. In assessing the need for a valuation allowance, management considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is "more likely than not" the deferred tax assets will not be realized, management records a valuation allowance. Based on the expected future taxable income of the Company and considering the uncertainties in the current market conditions, management concluded that it is "more likely than not" that the Company will not be able to fully realize the benefit of its deferred tax assets and thus a $20.7 million valuation allowance was recorded during the quarter ended September 30, 2010. This valuation allowance does not preclude the Company from utilizing the accumulated deferred tax asset to offset future earnings.

The Company is currently exploring options to divest its interest in the remaining $7.2 million of additional NMTC tax credits it expects to receive through the period ending March 31, 2014. The Company's ability to utilize the deferred tax asset generated by NMTC as well as other deferred tax assets depends on its ability to generate sufficient taxable income from operations or from potential tax strategies to generate taxable income in the future. Since the Company has established a valuation allowance on the total amount of its net deferred tax asset, management believes there is greater economic benefit to the Company in divesting its interest in these tax credits.

Total liabilities decreased $24.0 million, or 3.2%, to $719.7 million at September 30, 2010, compared to $743.8 million at March 31, 2010.

Deposits decreased $4.3 million, or 0.7%, to $598.9 million at September 30, 2010, compared to $603.2 million at March 31, 2010. While measurable growth in non-interest bearing checking account balances occurred, savings account and certificate of deposit balances declined slightly.

Advances from the FHLB-NY and other borrowed money decreased by $19.1 million, or 14.5%, to $112.5 million at September 30, 2010, compared to $131.6 million at March 31, 2010, as two fixed-rate borrowings matured.

Total stockholders' equity decreased $26.6 million, or 43.2%, to $35.0 million at September 30, 2010, compared to $61.7 million at March 31, 2010 due to the $23.4 million loss recorded for the second quarter, partially offset by an increase in unrealized gains on investment securities of $0.3 million.

Asset Quality

At September 30, 2010, non-performing assets totaled $79.8 million, or 10.6% of total assets compared to $47.6 million or 5.9% of total assets at March 31, 2010. Non-performing assets at September 30, 2010 were comprised of $49.9 million of loans 90 days or more past due and non-accruing, $11.2 million of loans that have been deemed to be impaired and $18.7 million of loans classified as a troubled debt restructuring and either not consistently performing in accordance with modified terms or not performing in accordance with modified terms for at least six months. Of the $11.2 million of impaired loans included in non-performing assets, approximately $1.4 million, while having experienced some payment difficulties in the past, are presently current with regard to their payments but are considered impaired and therefore on non-accrual status, due primarily to declines in collateral values. The Company does not anticipate marked improvement in its level of delinquencies until the economy rebounds. However, the Company continues to proactively work with borrowers to address delinquent loans and their impact.

The allowance for loan losses was $17.4 million at September 30, 2010, which represents a ratio of the allowance for loan losses to non-performing loans of 21.9% compared to 30.2% at March 31, 2010. The ratio of the allowance for loan losses to total loans was 2.8% at September 30, 2010 up from 1.8% at March 31, 2010.

About Carver Bancorp, Inc.

Carver Bancorp, Inc. is the holding company for Carver Federal Savings Bank, a federally chartered stock savings bank, founded in 1948 to serve African-American communities whose residents, businesses and institutions had limited access to mainstream financial services. Carver, the largest African- and Caribbean-American run bank in the United States, operates nine full-service branches in the New York City boroughs of Brooklyn, Manhattan and Queens. For further information, please visit the Company's website at www.carverbank.com .

Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors, risks and uncertainties. More information about these factors, risks and uncertainties is contained in our filings with the Securities and Exchange Commission